The dawn of woke investing

Money makes money, and as the old saying goes, no one got rich on their salary alone.

We all know that investing is essential for our financial health. If you want an investment strategy that doesn’t come at a cost to your conscience, you’re not alone.

People want their money to do good work (while it’s growing)

In a recent study conducted by Swell Investing, seven out of ten Americans want their investments to align with their personal values, while defining values as the “principles or ideas that drive and guide their behavior.” As our societal consciousness becomes more concerned with human rights, fair wages, and the environment, it’s only natural that these topics come into play in investment strategy as well. That’s why investors are paying attention to ways that their investments can impact clean water and play a role in advancing renewable energy.

This consciousness is growing. Millennials are most likely to be concerned with a company’s labor policies when choosing investments. 37% of Millennials answered that this would be a topic of importance to them when making the decision, as compared to 24% of Baby Boomers. People from Gen X were least likely to be concerned, with 22% of people answering that this would be a topic of important to them.

Millennials were also 9% more likely than the general population to be concerned with whether or not the companies they invest in are working to solve a major world problem. Investing in companies that make a difference will continue to become more prevalent as Millennials invest their money. 54% of Millennials say they don’t invest their money now, but when they do, it will be important that their money goes towards socially responsible and impact investments.

Decode where your money is going

One of the hurdles that comes along with getting your investments to align with your personal values is knowing where your money is going in the first place. Often, that’s easier said than done.

Of the Millennials who responded that they have investments, most could not identify the top three companies or stocks in their portfolios. 49% of participants said that they could not name those companies or stocks, as opposed to 27% who would said they could and 24% who said their investments did not include stocks.

Most retirement plans, mutual funds, ETFs, etc, are bundled together. Individuals make choices based on how aggressive or conservative they want their plan to be, and the companies contained in them are sorted and selected by financial performance rather than by social impact. It’s unlikely that the average investor is going to sit down and page through their investment statements to go over every trade and company it handles.

That’s what makes impact investing such a great alternative. When companies and stocks are preselected based on a set of criteria to determine their social, environmental, and global impact, it eliminates guesswork for conscious investors. This way investors don’t have to worry about monitoring their investments to make sure that they aren’t giving money to companies that don’t align with their personal values.

A healthy dose of skepticism

While Millennials are more conscious than previous generations, that doesn’t mean they offer their support blindly. When asked what their biggest concern would be around socially responsible or impact investing, the number one answer was that they weren’t certain their money would actually support a good cause.

This skepticism probably comes from growing up with companies offering lip service to good causes without much follow through. Millennials aren’t interested in their money “sounding” like it makes a difference. They want it to actually make a difference.

We agree. That’s why each addition to a Swell portfolio is vetted to ensure it aligns with our values. We’re looking for companies that make a difference, and we sort those companies into four categories. We make it easy for investors to see where their money is going, and we regularly do deep dives into our portfolio holdings so that our investors can get to know the companies in their portfolios.

Radical transparency is essential to building trust with value-centered investors. As more Millennials begin to invest, we’ll see the emphasis on impact investing continue to increase.

This website is operated by Swell Investing LLC, an SEC Registered Investment Adviser. Brokerage services provided to clients of Swell Investing LLC by Folio Investments, Inc., an SEC registered broker-dealer and member FINRA/SIPC. Investments: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Please consider your objectives and Swell’s fees before investing. Past performance does not guarantee future results. Investment outcomes and projections are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Swell is not registered. Friede, Gunnar, Timo Busch & Alexander Bassen. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies." Journal of Sustainable Finance & Investment, vol. 5, no. 4, 15 Oct. 2015, pp 210-233. https://doi.org/10.1080/20430795.2015.1118917. "S&P 500" is an abbreviation for the Standard & Poor's 500 Total Return Index, a market-value weighted index of 500 stocks chosen to reflect the risk/return characteristics of the large cap universe and one of the common benchmarks for the US stock market. The MSCI KLD 400 Social Index comprises companies with high Environmental, Social and Governance (ESG) ratings and excludes companies involved in Alcohol, Gambling, Tobacco, Military Weapons, Civilian Firearms, Nuclear Power, Adult Entertainment, and Genetically Modified Organisms (GMO). The Index aims to serve as a benchmark for investors whose objectives include owning companies with very high ESG ratings and avoiding companies that are incompatible with specific values-based criteria. Comparison to the S&P 500 Index and MSCI KLD 400 is shown for illustrative purposes only. Swell's portfolios differ from these benchmarks in that, among other factors, Swell's portfolios are managed, primarily comprised of small and mid cap stocks, are not diversified, bear fees, and may vary materially in volatility. Past performance is not indicative of future results.

The Swell Impact 400 is not a market index, is not based on any market index, and does not track any market index. At inception, the Swell Impact 400 contains 400 securities; however, the number of securities may vary over time based on market conditions, corporate actions, and other factors, including eligibility factors and limitations in security selection and portfolio construction. Any reference to "Impact 400" shall mean the "Swell Impact 400".